SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
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RULE 14A-6(E)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S)Section 240.14a-11(c) or (S)Section 240.14a-12
Stepan Company
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
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Notes:
STEPAN COMPANY
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To be held on May 9, 20001, 2001
at 9:00 a.m.
To the Stockholders:
Notice is hereby given that the Annual Meeting of Stockholders of STEPAN
COMPANY will be held at the Company's Administrative and Research Center at
Edens Expressway and Winnetka Road, Northfield, Illinois, on Tuesday, May 9,
2000,1,
2001, at 9:00 a.m., for the following purposes:
1. To elect two Directors to the Board.
2. To approve the adoption of the Stepan Company 2000 Stock Option
Plan.
3. To ratify the appointment of Arthur Andersen LLP as independent
auditors for the Company for 2000.
4.2001.
3. To transact such other business as may properly come before the
meeting.
The Board of Directors has designated the close of business on March 10,
2000,2,
2001, as the record date for determining holders of 5 1/2% Convertible
Preferred Stock and Common Stock entitled to notice of and to vote at the
meeting.
A copy of the Company's Annual Report for the year 19992000 is enclosed with
this notice.
By Order of the Board of Directors
JEFFREY W. BARTLETTKATHLEEN M. OWENS
Assistant Secretary
Northfield, Illinois
March 30, 200028, 2001
The Board of Directors of the Company extends a cordial invitation to all
stockholders to be present at the meeting. IfWhether or not you do not plan to attend
the meeting, please mark, sign and mail the enclosed proxy card in the return
envelope provided as promptly as possible.
If you plan to attend the meeting,
it will be necessary to obtain an admission card and a request form is also
enclosed. An admission card will be issued upon request in the name of each
stockholder of record. Each admission card is valid only for the admission of
the stockholder of record or bona fide beneficial owner or a designated proxy.
Bona fide beneficial owners of shares that are registered in the name of a
broker or other nominee should bring proof of beneficial ownership. No other
persons will be admitted to the Annual Meeting of Stockholders.
March 30, 200028, 2001
PROXY STATEMENT
For the Annual Meeting of Stockholders of
STEPAN COMPANY
Edens Expressway and Winnetka Road
Northfield, Illinois 60093
To be held at 9:00 a.m. on May 9, 20001, 2001
The enclosed proxy is solicited by the Board of Directors of the Company
and the entire expense of solicitation will be borne by the Company. Such
solicitation is being made by mail and the Company may also use its Officers
and its regular employees to solicit proxies from stockholders personally or
by telephone or letter. Arrangements will be made with the brokers,
custodians, nominees, or other fiduciaries who so request for the forwarding
of solicitation material to the beneficial owners of stock held of record by
such persons and the Company will reimburse them for reasonable out-of-pocket
expenses incurred by them in that connection.
At the close of business on March 10, 2000,2, 2001, the record date for the meeting,
there were 600,083583,469 shares of 5 1/2% Convertible Preferred Stock ("Preferred
Stock") outstanding, each share of which is convertible into 1.14175 shares of
Common Stock and is entitled to 1.14175 votes on each matter to be voted on at
the meeting, and, assuming the Preferred Stock were converted, there would be
9,803,2329,496,225 shares of Common Stock outstanding, each share of which is entitled
to one vote on each matter to be voted on at the meeting.
This proxy statement and proxy are being sent or given to stockholders
commencing on March 30, 2000.28, 2001. Any proxy given pursuant to this solicitation
may be revoked by the stockholder at any time prior to the voting of the
proxy.
PRINCIPAL STOCKHOLDERS
As of March 10, 2000,2, 2001, the only persons known to the Company to beneficially
own more than five percent of the Company's Common Stock were the following:
Number of Shares of Common Stock
Beneficially Owned(2)(9)
------------------------------------------------- Percentage of
Voting andand/or Investment Power Outstanding
------------------------------------------------- Total Shares of
Name(1) Sole Shared Shares Common Stock
- ------- ----------------- ----------------- --------- -------------
F. Quinn Stepan(4)...... 1,881,114(6)1,831,773(6)(7)(10)(11) 612,217(3) 2,493,331 25.4%609,918(3) 2,441,691 25.7%
Plan Committee for
Stepan Company
Qualified Plans........ 907,004(5)911,504(5)(8) 907,004 9.2%911,504 9.5%
Paul H. Stepan(4)....... 16,226 612,217(3) 628,443 6.4%13,922 609,918(3) 623,840 6.5%
Dimensional Fund
Advisors Inc........... 604,700(12) 604,700Inc. ......... 609,200(12) 609,200 6.4%
State Street Research &
Management Company..... 587,090(13) 587,090 6.1%
1
As of March 10, 2000,2, 2001, the only persons known to the Company to beneficially
own more than five percent of the Company's Preferred Stock were the
following:
Number of Shares of Preferred Stock
Beneficially Owned(2)
------------------------------------------ Percentage of
Voting andand/or Investment Power Outstanding
------------------------------------------ Total Shares of
Name(1) Sole Shared Shares Preferred Stock
- ------- ----------------- ------------------ ------- ---------------
F. Quinn Stepan(4)...... 12,812 166,480(3) 179,292 29.8%30.7%
Paul H. Stepan(4)....... 6,2114,193 166,480(3) 172,691 28.7%170,673 29.2%
Plan Committee for
Stepan Company
Qualified Plans........ 96,728(5)(8) 96,728 16.1%16.5%
Mary Louise Wehman(4)... 89,684 89,684 14.9%15.3%
John Stepan(4).......... 84,312 84,312 14.0%76,872 76,872 13.1%
Charlotte Stepan
Flanagan(4)............ 35,244 35,244 5.8%6.0%
- --------
(1) Except as otherwise set forth herein, the address of all persons named is
Stepan Company, Edens Expressway and Winnetka Road, Northfield, Illinois
60093.
(2) Represents number of shares beneficially owned as of March 10, 2000.2, 2001.
Number of shares owned includes shares held by the spouses of F. Quinn
Stepan and Paul H. Stepan and shares held by the persons listed in the
table, as trustee or custodian for the benefit of children where the
trustee or custodian has voting or investment power.
(3) F. Quinn Stepan and Paul H. Stepan are managing partners of a family-ownedfamily-
owned limited partnership which is the sole general partner in another
family-
ownedfamily-owned limited partnership which owns 422,139419,840 shares of Common
Stock and 166,480 shares of Preferred Stock. The shares owned by the
partnership are included in the tables for both F. Quinn Stepan and Paul
H. Stepan.
(4) F. Quinn Stepan, Paul H. Stepan, John Stepan, Mary Louise Wehman and
Charlotte Stepan Flanagan are the children of the late Mary Louise
Stepan.
(5) The members of the Plan Committee are J. A.J.A. Hartlage, W. J.W.J. Klein and F.
Q.F.Q.
Stepan, Jr., all of whom are employees of the Company.
(6) Includes 4,4414,571 shares of Common Stock allocated to F. Quinn Stepan under
the Employee Stock Ownership Plan.
(7) Includes 483,686448,686 shares which F. Quinn Stepan has the right to acquire
within 60 days through the exercise of stock options granted pursuant to
the Company's stock option plans.
(8) Represents shares held by Citibank, F.S.B. ("Citibank") as Trustee for
the Company's Trust for Qualified Plans. Citibank is also the Trustee
for the Company's Employee Stock Ownership Plan. Citibank expressly
denies any beneficial ownership in the securities of these Plans.
(9) Includes the number of shares of Common Stock which the specified person
has the right to acquire by conversion of Preferred Stock beneficially
owned by such person.
(10) Includes 255,445263,391 shares of Common Stock credited to F. Quinn Stepan's
stock account under the 1992 Management Incentive Plan. Under the 1992
Management Incentive Plan, amounts credited to an employee's stock
account at termination of his employment may be paid in Common Stock at
the employee's election.
(11) Mr. F. Quinn Stepan is the sole executor of the estate of Mary Louise
Stepan. As of March 10, 2000,2, 2001, there were 154,902 shares of Common Stock
held by the estate of Mary Louise Stepan. The shares owned by the estate
of Mary Louise Stepan are not included in the tables for F. Quinn
Stepan.
(12) Dimensional Fund Advisors Inc. ("Dimensional"), 1299 Ocean Avenue, 11th
Floor, Santa Monica, California 90401, an investment advisor registered
under Section 203 of the Investment Advisors Act of 1940, furnishes
investment advice to four investment companies registered under the
Investment Company Act of 1940, and serves as investment manager to
certain other commingled group trusts and separate accounts. These
investment companies, trusts and accounts are the "Funds". In its role
as investment adviser or manager, Dimensional possesses voting and/or
investment power over 604,700609,200 shares of
2
Company stock as of December 31, 1999.2000. These shares are owned by the
Funds. Dimensional disclaims beneficial ownership of all such shares.
(13) State Street Research & Management Company ("SSRM"), One Financial
Center, Boston, Massachusetts, 02111, is a registered investment advisor
under Section 203 of the Investment Advisors Act of 1940. As of December
31, 2000, the 587,090 shares reported were owned by various clients of
SSRM. SSRM has investment discretion with respect to all 587,090 shares.
SSRM has sole voting discretion with respect to 571,990 shares. The
remaining 15,100 shares are actually voted directly by SSRM clients. SSRM
disclaims any beneficial ownership in any of the 587,090 shares.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 and the rules
thereunder require the Company's Officers and Directors, and persons who own
more than 10 percent of the Company's Common Stock or Preferred Stock, to file
reports of beneficial ownership and changes in beneficial ownership of the
Common Stock or Preferred Stock with the Securities and Exchange Commission,
the New York Stock Exchange, the Chicago Stock Exchange and the Company. Based
solely upon a review of the copies of such forms received by it during or with
respect to its most recent fiscal year, or written representations from
certain reporting persons, the Company believes that Paul H. Stepan filed one
late report of one transaction and M. Mirghanbari filed two late reports of
two transactions.
ELECTION OF DIRECTORS
The persons named in the enclosed Proxy will vote for the election of the
nominees named below as Directors of the Company to hold office until the
Annual Stockholders' Meeting to be held in the year 2003.2004.
Under the Company's Certificate of Incorporation and By-laws, Directors are
elected by a plurality of the voting power of the shares of Preferred Stock
and Common Stock present in person or represented by proxy at the meeting and
entitled to vote, voting together as a single class. The outcome of the
election will not be affected by shares that withhold authority to vote in the
election.
In the event any one or more of such nominees shall be unable to serve as
Director, votes will be cast, pursuant to the authority granted in the
enclosed Proxy, for such person or persons as may be designated by the Board
of Directors. The Board of Directors at this time is not aware of any nominee
who is or will be unable to serve as Director, if elected.
3
Nominees For Director
The following table sets forth certain information about the nominees for
Director:
Principal Occupation and
Business Experience
During Year of Number and Percent
the Past Five Years, First of Shares of Common
Other Election as Stock Beneficially
Name of Nominee Directorships and Age Director Owned (1)
--------------- ------------------------ ----------- -----------------------
Robert D. Cadieux.............G. Potter... Private Investor. From 1992 28,213(2)1995 9,700(2) *
1993 to January 1995,
President and Chief
Executive Officer of Air
Liquide America
Corporation, a
manufacturer of
industrial gases. From
1991 to 1993, Executive
Vice President of Amoco
Corporation. From 1983
to 1991, President of
Amoco Chemical Company.
Trustee of Illinois
Institute of Technology.
Age--62
Paul H. Stepan . . . . . . . . Chairman of SA Inc., a 1977 628,443(2) 6.4%
real estate development (3)
firm. President and (4)
Director of Paul Stepan
& Associates, Inc., a
real estate development
firm, since June 1985.
General Partner of
Stepan Venture which is
involved in various
venture capital
investments. Executive
Director, Mesirow
Financial, an investment
banking operation, from
1993 to May 1998.
Age--56
3
* Less than one percent of outstanding shares.
- --------
(1) Represents number of shares beneficially owned as of March 10, 2000.
Number of shares includes shares owned by the spouse of a Director and
shares held by a Director or their spouse as trustee or custodian for the
benefit of minor children where the trustee or custodian has voting or
investment power.
(2) Includes 6,176 shares that such Director has the right to acquire within
60 days through the exercise of stock options granted pursuant to the
Company's stock option plan.
(3) See Note (3) to tables under Principal Stockholders.
(4) See Note (9) to tables under Principal Stockholders.
Directors Whose Terms Continue
The following table sets forth certain information about those Directors
who are not up for reelection as their term of office does not expire this
year:
Principal Occupation and
Business Experience
During Year of Number and Percent of
the Past Five Years, First Shares of Common
Other Election as Term Stock Beneficially
Name of Director Directorships and Age Director Expires Owned (1)
---------------- ------------------------ ----------- ------- -------------------------
Thomas F. Grojean..
Chairman and Chief 1977 2002 42,074(2) *
Executive Officer of
Burlington Motor
Carriers, Inc. Chairman,
Chief Executive Officer
and sole owner of
Schanno Transportation,
Inc. Both firms are
nationwide truckload
freight carriers.
Age--61
James A. Hartlage.. Senior Vice President-- 1984 2002 1,053,284(3) 10.7%
Technology and (4)
Operations of the (8)
Company since 1995; (11)
Senior Vice President--
Technology of the
Company from 1992 to
1995.
Age--62
Robert G. Potter .. Chairman and Chief 1995 2001 8,404(5) *
Executive Officer of
Solutia Inc., the former
chemical businesses of
Monsanto Company, from
1997 to 1999. Chief
Executive of the
chemical businesses of
Monsanto Company from
1986 to 1997. Executive
Vice President of
Monsanto Company from
1990 to 1997 and an
Advisory Director of
Monsanto Company from
1986 to 1997. Director
of SolutiaArch Coal Inc. and
Southdown, Inc.
Age--60,
effective April 1, 2001.
Age--61
F. Quinn Stepan ...Stepan.... Chairman and Chief 1967 2001 2,493,331(7) 25.4%2,441,691(3) 25.7%
Executive Officer of the (9)(4)
Company since November (10)(5)
1984. President and (11)(6)
Chief Operating Officer (12)(7)
of the Company from 1973 (13)(8)
to February 1999.
Age--62Age--63
* Less than one percent of outstanding shares.
- --------
(1) Represents number of shares beneficially owned as of March 2, 2001.
Number of shares includes shares owned by the spouse of a Director and
shares held by a Director or their spouse as trustee or custodian for the
benefit of minor children where the trustee or custodian has voting or
investment power.
(2) Includes 3,744 shares that such Director has the right to acquire within
60 days through the exercise of stock options granted pursuant to the
Company's stock option plan.
(3) See Note (3) to tables under Principal Stockholders.
(4) See Note (6) to tables under Principal Stockholders.
(5) See Note (7) to tables under Principal Stockholders.
(6) See Note (9) to tables under Principal Stockholders.
(7) See Note (10) to tables under Principal Stockholders.
(8) See Note (11) to tables under Principal Stockholders.
Directors Whose Terms Continue
The following table sets forth certain information about those Directors
who are not up for reelection as their term of office does not expire this
year:
Principal Occupation and
Business Experience
During Year of Number and Percent
the Past Five Years, First of Shares of Common
Other Election as Term Stock Beneficially
Name of Director Directorships and Age Director Expires Owned (1)
---------------- ------------------------ ----------- ------- ----------------------
Robert D. Cadieux.. Private Investor. From 1992 2003 31,130(2) *
1993 to January 1995,
President and Chief
Executive Officer of Air
Liquide America
Corporation, a
manufacturer of
industrial gases. From
1991 to 1993, Executive
Vice President of Amoco
Corporation. From 1983
to 1991, President of
Amoco Chemical Company.
Trustee of Illinois
Institute of Technology.
Age--63
4
Principal Occupation and Year of Number and Percent of
Business Experience During First Shares of Common
the Past Five Years, Election as Term Stock Beneficially
Name of Director Other Directorships and Age Director Expires Owned (1)
---------------- --------------------------- ----------- ------- -------------------------
Thomas F. Grojean.. Chairman and Chief 1977 2002 45,290(2) *
Executive Officer of
Burlington Motor
Carriers, Inc. Chairman,
Chief Executive Officer
and sole owner of
Schanno Transportation,
Inc. Both firms are
nationwide truckload
freight carriers.
Age--62
James A. Hartlage.. Senior Vice President-- 1984 2002 1,042,950(3) 10.9%
Technology (4)
and Operations of the (7)
Company since 1995; (8)
Senior Vice President--
Technology of the
Company from 1992 to
1995.
Age--63
F. Quinn Stepan, Jr..... President and Chief 1999 2002 1,110,670(3) 11.3%1,162,895(3) 12.2%
Jr. .............. Operating Officer of the (6)(5)
Company since February (8)(7)
1999; Vice President and
General Manager-Manager--
Surfactants of the
Company from 1997 to
1999; Vice President,
Global Laundry and
Cleaning Products of the
Company from 1996 to
1997; Director-BusinessDirector--Business
Management of the
Company from 1992 to
1996. Director of
Transport Capital LLC.
Age--39Age--40
Paul H. Stepan..... Chairman of SA Inc., a 1977 2003 623,840(2) 6.5%
real estate development (6)
firm. President and (8)
Director of Paul Stepan
& Associates, Inc., a
real estate development
firm, since June 1985.
General Partner of
Stepan Venture which is
involved in various
venture capital
investments. Executive
Director, Mesirow
Financial, an investment
banking operation, from
1993 to May 1998.
Age--57
* Less than one percent of outstanding shares.
- --------
(1) See Note (1) to table under Nominees for Director.
(2) Includes 6,176 shares that such Director has the right to acquire within
60 days through the exercise of stock options granted pursuant to the
Company's stock option plan.
(3) Includes all shares deemed beneficially owned by the Plan Committee, of
which J.A. Hartlage and F.Q. Stepan, Jr. are members. The Plan Committee
selects the investment manager of the Stepan Company Trust for Qualified
Plans under the terms of a Trust Agreement dated June 1, 1996, with
Citibank, F.S.B. See Principal Stockholders.
(4) Includes 88,51668,516 shares of Common Stock which J.A. Hartlage has the right
to acquire within 60 days through the exercise of stock options granted
pursuant to the Company's stock option planplans and 2,6112,687 shares allocated
to J.A. Hartlage under the Employee Stock Ownership Plan.
5
(5) Includes 3,744 shares that such Director has the right to acquire within
60 days through the exercise of stock options granted pursuant to the
Company's stock option plan.
(6) Includes 86,145129,040 shares of Common Stock which F. Quinn Stepan, Jr. has
the right to acquire within 60 days through the exercise of stock options
granted pursuant to the Company's stock option plan, 1,041plans, 1,071 shares
allocated to F. Quinn Stepan, Jr. under the Employee Stock Ownership
Plan, and 10,77711,112 shares credited to F. Quinn Stepan, Jr.'s stock account
under the 1992 Management Incentive Plan. F. Quinn Stepan, Jr. is the son
of F. Quinn Stepan and the nephew of Paul H. Stepan.
(7)(6) See Note (3) to tables under Principal Stockholders.
(8)(7) See Note (5) to tables under Principal Stockholders.
(9) See Note (6) to tables under Principal Stockholders.
(10) See Note (7) to tables under Principal Stockholders.
(11)(8) See Note (9) to tables under Principal Stockholders.
(12) See Note (10) to tables under Principal Stockholders.
(13) See Note (11) to tables under Principal Stockholders.
5
Stock Ownership of Directors and Officers
The following table sets forth as of the close of business on March 10,
2000,2,
2001, the stock ownership of those Officers listed in the Compensation Table
who are not Directors and the stock ownership of Directors and Officers as a
group on such date:
Number and Percent of Shares
of Common Stock
Name Beneficially Owned(1)
---- ----------------------------
Ronald L. Siemon......................... 76,875(2)13,823(2) *
M. Mirghanbari........................... 91,239(3)67,252(3) *
All Directors and Officers(4)............ 4,168,289 42.5%4,086,882 43.0%
*Less than one percent of outstanding shares.
- --------
(1) Number of shares for each Officer (and Directors and Officers as a group)
includes (a) shares owned by the spouse of the Director or Officer and
shares held by the Director or Officer or his spouse as trustee or
custodian for the benefit of minor children where the trustee has voting
or investment power and (b) shares of Common Stock which may be acquired
within 60 days through the exercise of stock options granted pursuant to
the Company's stock option plans or conversion of Preferred Stock.
(2) Includes 1,707 shares allocated to Ronald L. Siemon under the Employee
Stock Ownership Plan, 46,25211,302 shares that Ronald L. Siemon has the right to acquire
under a stock option plan, and 11,395 shares credited to Ronald L.
Siemon's stock account underplan. Mr. Siemon retired from the 1992 Management Incentive Plan.Company on
December 31, 2000.
(3) Includes 1,9211,977 shares allocated to M. Mirghanbari under the Employee
Stock Ownership Plan and 67,13754,437 shares that M. Mirghanbari has the right
to acquire under stock option plans.
(4) As of March 10, 2000,2, 2001, all Directors and Officers as a group beneficially
owned 186,003183,985 shares of Preferred Stock, which represented 30%31% of the
outstanding Preferred Stock and were convertible into 212,368210,064 shares
(2.1%(2.2%) of Common Stock. As of March 10, 2000,2, 2001, Company-employed Directors
and Officers as a group had the right to acquire 867,820817,994 shares of Common
Stock under stock options exercisable within 60 days, 16,71814,436 shares of
Common Stock were allocated to Company-employed Directors and Officers
under the Employee Stock Ownership Plan, and 300,260300,715 shares of Common
Stock were credited to stock accounts of Company-employed Directors and
Officers under the 1992 Management Incentive Plan.
Board of Directors and Committee Meetings
There were four regular meetings and one special meeting of the Board of
Directors during 1999.2000. During 1999,2000, none of the Directors attended fewer than
75 percent of the total number of meetings of the Board of Directors and
meetings of committees of the Board of Directors of which such Director was a
member.
The Board of Directors has an Audit Committee consisting of three outside
independent Directors which held fourthree meetings in 1999.2000. The functions of the
Audit Committee include annual consideration of the selection of independent
auditors, meeting with the auditors before the year-end audit to review the
proposed scope of work of the audit, meeting with the auditors at the
completion of the year-end audit to review the results of the audit, review of
the auditors' memorandum setting forth findings and suggestions regarding
internal control, financial policies and procedures and management's response
thereto, review of the internal audit program of the Company and review of
unusual or significant financial transactions. The members of the Audit
Committee are Messrs. Cadieux, Grojean and Potter.
6
The Board of Directors has a Compensation and Development Committee which
held two meetings in 1999.2000. The functions of the Compensation and Development
Committee include reviewing the salaries of the Officers of the Company each
year, adjusting them as appropriate, approving all management incentive awards
and approving proposals for granting of stock options. The members of the
Compensation and Development Committee are Messrs. Cadieux, Grojean, Potter
and P. Stepan.
The Board of Directors has no Nominating Committee.
6
Compensation of Executive Officers and Directors
The following table sets forth a summary of the compensation of the Chief
Executive Officer and the four other most highly compensated executive
officers of the Company for the years indicated.
Annual Long-Term
Compensation Compensation
----------------- ------------
Name and Principal Awards of All Other
Position Year Salary Bonus Options Compensation(1)
------------------ ---- -------- -------- ------------ -----------------------------
F. Quinn Stepan......... 1999 $483,333 $284,200 -0- $29,1632000 $500,667 $ 0 69,793 shs $19,673
Chairman and CEO 1999 483,333 284,200 -0- 29,163
1998 464,000 42,350 48,436 shs 24,872
1997 446,333 256,500 65,000 shs 24,457
F. Quinn Stepan, Jr..... 2000 $346,667 $ 0 49,237 shs $13,029
President and COO 1999 $307,500 $180,810307,500 180,810 42,895 shs $17,420
President and COO17,420
1998 208,333 29,900 16,145 shs 10,625
1997 177,292 100,350 40,000 shs 9,379
James A. Hartlage....... 1999 $277,333 $120,363 -0- $16,7832000 $289,667 $ 69,520 20,275 shs $11,768
Senior Vice President -President- 1999 277,333 120,363 -0- 16,783
Technology and
Operations 1998 266,667 75,700 12,916 shs 14,332
Technology and
Operations 1997 256,667 140,650 -0- 14,103
Ronald L. Siemon........ 1999 $200,333 $113,989 -0- $12,0172000 $208,333 $ 68,125 14,551 shs $ 8,576
Vice President and
General 1999 200,333 113,989 -0- 12,017
Manager Polymers 1998 191,000 90,450 11,302 shs 10,174
Manager Polymers 1997 180,333 19,850 -0- 9,856
M. Mirghanbari.......... 2000 $215,333 $ 38,760 15,034 shs $ 8,896
Vice President- 1999 $207,333 $207,333 92,263 -0- $12,554
Vice President-12,554
Manufacturing and 1998 199,000 53,500 9,687 shs 10,759
Manufacturing and 1997 190,333 90,800 -0- 10,524
Engineering
- --------
(1) For 1999,2000, represents awards to each listed individual of a forfeiture
allocation of $3 under the Company's Employee Stock Ownership
Plan ("ESOP") as well asof dividends on shares in each listed individual's ESOP
account as follows: Mr. Stepan: $2,845;$2,942; Mr. Stepan, Jr.: $667;$690; Mr.
Hartlage: $1,672;$1,730; Mr. Siemon: $1,094;$1,154; and Mr. Mirghanbari: $1,251.$1,273. Also
includes awards of $8,726$6,122 under the Company's Profit Sharing Plan ("Profit
Sharing") as well as awards under the Company's Supplemental Profit
Sharing Plan as follows: Mr. Stepan: $17,589;$10,609; Mr. Stepan, Jr.: $8,024;$6,217; Mr.
Hartlage: $6,382;$3,916; Mr. Siemon: $2,194;$1,300; and Mr. Mirghanbari: $2,574.$1,501. The
$3
ESOP forfeiture allocation amount and the $8,726$6,122 Profit Sharing amount werewas restricted due to limitations imposed by
the Revenue Reconciliation Act of 1993.
7
The following table provides information concerning individual grants
during 19992000 of stock options made to each of the named executive officers.
Option Grants in Last Fiscal Year
Potential Realizable
Value at Assumed
Annual Rates of Stock
Price Appreciation
Individual Grants for Option Individual Grants Term
----------------------------------------------------------------------------------------- -------------------------
Percent
of
Number of of Total Exercise
Securities Options Exerciseor
Underlying Granted to or Base
Options Employees in Price Expiration
Name Granted (#) Fiscal Year ($/Sh) Date 5% 10%
---- ----------- ------------ ----------------- ---------- ------------ ------------
F. Quinn Stepan......... -0- 0% -- -- -- --Stepan ........ 69,793 17.0% $21.750 5-8-10 $ 954,661 $ 2,419,297
F. Quinn Stepan, Jr..... 42,895 66.9% $23.31250 2-15-09Jr. ... 45,058 10.9% 21.750 5-8-10 $ 628,888616,324 $ 1,593,7261,561,886
F. Quinn Stepan, Jr. ... 4,179 1.0% 23.925 5-8-05 $ 62,879 $ 159,346
James A. Hartlage....... -0- 0% -- -- -- --20,275 4.9% 21.750 5-8-10 $ 277,331 $ 702,811
Ronald L. Siemon........ -0- 0% -- -- -- --14,551 3.5% 21.750 5-8-10 $ 199,035 $ 504,394
M. Mirghanbari.......... -0- 0% -- -- -- --Mirghanbari ......... 15,034 4.0% 21.750 5-8-10 $ 205,642 $ 521,137
The following additional computations are examples of hypothetical gains by
all common stockholders and the above optionees on the same assumptions set
forth above, that is, at assumed annual rates of common stock appreciation of
5% and 10%, respectively, for the term of the above options. Such assumed
rates are prescribed by rules of the Securities and Exchange Commission and
are not intended to forecast possible future appreciation, if any, of the
Company's Common Stock prices. The Company is not aware of any formula which
will determine with reasonable accuracy a present value based on future
unknown factors.
All common stockholders. N/A N/A N/A N/A $143,726,220 $364,230,460$129,520,455 $328,230,262
All above optionees..... 42,895 66.9% $23.31250 2-15-09168,890 41.4% $21.750/ 5-8-05/ $ 628,8882,315,871 $ 1,593,7265,868,872
23.925 5-8-10
Above optionees gain as
% of all stockholders
gain................... N/A N/A N/A N/A 0.4% 0.4%1.8% 1.8%
The following table provides information concerning exercises during 19992000
of stock options and as to option values at year-end.
19992000 Aggregated Option Exercises in Last Fiscal Year and Year-End Option
Values
Shares Number of Securities Value of Unexercised
Acquired Underlying Unexercised In-the-Money Options
at
on Value Options at 19992000 Year-End 1999at 2000 Year-End
Name Exercise Realized Exercisable/Unexercisable Exercisable/Unexercisable
- ---- ---------- -------- ------------------------- -------------------------
F. Quinn Stepan......... 35,000 shs $542,500 435,250/48,436$457,187 448,686/69,793 shs $ 3,228,408/0$2,865,673/135,244
F. Quinn Stepan, Jr.....Jr. ... -0- -0- 70,000/59,04086,145/92,132 shs 351,939/2,681$ 373,814/103,386
James A. Hartlage....... -0- -0- 75,600/12,91610,000 shs 534,676/0$ 76,250 78,516/20,275 shs $ 461,426/39,285
Ronald L. Siemon........ -0- -0- 34,950/11,30234,950 shs 264,694/$288,243 11,302/0 shs $ 0/0
M. Mirghanbari.......... 9,500-0- -0- 67,137/15,034 shs $122,899 57,450/9,687 shs 515,163/0$ 533,116/29,129
8
Directors' Fees
Directors who are not also Officers of the Company are currently being paid
an annual Director's fee of $37,000$39,000 plus $1,250$1,350 for attendance at each Board
of Directors meeting, Audit Committee meeting and Compensation and Development
Committee meeting. No such fees are paid to Directors who are also Officers of
the Company. Under the Company's 1965 Directors' Deferred Compensation Plan,
the Company has entered into agreements with certain of its non-employee
Directors under which a Director, at his election, may defer receipt of his
Director's fees and such deferred fees are (i) used to purchase shares of the
Company's Common Stock and such shares and future distributions thereon are
deposited in the Director's account, (ii) credited to the Stepan Company
Deferred Income Account, (iii) used to purchase shares of selected publicly-
traded mutual funds or (iv) divided equally between the purchase of shares of
the Company's Common Stock, the Stepan Company Deferred Income Account and
shares of selected publicly tradedpublicly-traded mutual funds. Funds in the Stepan Company
Deferred Income Account may not be used to purchase shares of the Company's
Common Stock, but earn interest at the same rate as bonds with a maturity of
ten years. At the election of a Director, deferred payments may be made in
shares of Stepan Common Stock or cash based on the fair market value of the
Director's account at distribution, which commences, depending upon the terms
of the agreement with the particular Director, upon retirement as a Director
or from active or professional life or at any time between ages 60 to 70, with
payments being made periodically over a period of five to ten years.
In addition, the 1992 Stock Option Plan providesprovided for the granting of a
stock option, as of the date of the annual meeting of the Company's
stockholders in calendar year 2000, and the 2000 Stock Option Plan provides
for the granting of a stock option, as of the date of the annual meeting of
the Company's stockholders in calendar years 2002, 2004, 2006 and 2008 to each
non-employee Director serving as a Director of the Company on such date to
purchase the number of shares of Common Stock determined by dividing the non-employeenon-
employee Director's annual retainer fee for the applicable year by the fair
market value of a share of Common Stock on the date of the grant. The exercise
price of each share of Common Stock under a stock option granted to a non-employeenon-
employee Director will be equal to the fair market value of a share of Common
Stock on the date of the grant or, if greater, par value. The exercise price
may be paid, upon exercise, in cash, in shares of Common Stock or in any
combination of cash or Common Stock as the non-employee Director completes two
continuous years of service as a non-employee Director following the date of
the grant, but not more than ten years after the date of the grant. The 1992
and 2000 Stock Option Plan
setsPlans set forth restrictions upon the exercise of stock
options by non-employee Directors upon termination of their service by reason
of death, disability, retirement or otherwise.
The Company has a non-qualified, non-funded retirement income plan for the
benefit of the non-employee Directors. The plan provides for a benefit after
ten years of service of 50 percent of the annual Director's fee at retirement
plus two percent for each year served on the Board in excess of ten years with
a maximum 25 years credit in excess of ten years. Benefits commence at 70
years of age.
Retirement Plans
The Company has a non-contributory retirement plan (the "Retirement Plan")
covering all salaried employees that provides for a maximum pension benefit
equal to 50 percent of the employee's average base compensation, reduced by an
amount equal to 50 percent of the employee's primary Social Security benefit
at age 65, for employees with 30 years of service who retire at or after age
63. Base compensation is computed on the average base salary for the five
highest consecutive earnings years during the last 15 years prior to
retirement. The amount of salary taken into account for any year is subject to
certain limitations contained in the Internal Revenue Code ($160,000170,000 in 1999,2000,
to be indexed in future years for inflation in accordance with IRS
regulations, and subject to certain transition rules for prior years in which
greater amounts of salary were permitted to be taken into account). The
Company also has a non-qualified supplemental retirement plan (the "SERP") for
designated executives. The SERP replaces benefits under the qualified plan
that would otherwise be denied due to Internal Revenue Code limits on
qualified plan benefits. The following table sets forth the maximum annual
retirement income payable under the Retirement Plan and the SERP, prior to
reduction by an amount equal to 50 percent of projected age 65 Social Security
benefits, at age 63 for indicated salaries and lengths of service.
9
Years of Service
-------------------------------
Base Salary 15 20 25 30
- ----------- ------- ------- ------- -------
$160,000........................................ 40,000 53,333 66,667 80,000
200,000........................................ 50,000 66,667 83,333 100,000$170,000........................................ 42,500 56,667 70,833 85,000
300,000........................................ 75,000 100,000 125,000 150,000
400,000........................................ 100,000 133,400 166,600 200,000
500,000........................................ 125,000 166,667 208,333 250,000
600,000........................................ 150,000 200,000 250,000 300,000
The years of credited service and the 19992000 base salary (determined without
regard to the limitation imposed by the Internal Revenue Code) for each of the
Officers named in the cash compensation table are as follows:
Years of
Name of Individual Credited Service Base Salary
- ------------------ ---------------- -----------
F. Quinn Stepan.................................... 38 $483,33339 $500,667
F. Quinn Stepan, Jr. .............................. 14 307,50015 346,667
James A. Hartlage.................................. 22 277,33323 289,667
Ronald L. Siemon................................... 30 200,33331 208,333
M. Mirghanbari..................................... 30 207,33331 215,333
10
STOCK PERFORMANCE GRAPH
The following performance graph compares the yearly change since December
31, 1994,1995, in cumulative return on the Common Stock of the Company on a
dividend reinvested basis to the Dow Jones Chemical Industry Index and the
Russell 2000 Index. The Dow Jones Chemical Industry Index is a market-
capitalization weighted grouping of 2034 chemical companies, including major
manufacturers of both basic and specialty products. Stepan Company is not
included in this Index. The Russell 2000 Index is a market-capitalization
weighted grouping of 2,000 small to medium sized companies in a broad range of
industries. Stepan Company was a part of the Russell 2000 Index during 1999.2000.
The graph assumes $100 was invested on December 31, 1994,1995, and shows the
cumulative total return as of each December 31 thereafter.
[GRAPH]
Cumulative Value at December 31**
December 31
- -----------------------------------------------------------------------------------------
1994 1995 1996 1997 1998 1999 2000
- -----------------------------------------------------------------------------------------
Stepan Company $100.00 $113.75 $143.03 $212.79 $195.03 $175.61$125.74 $187.07 $171.45 $154.38 $161.48
- -----------------------------------------------------------------------------------------
Dow Jones Chemical
Industry IndexIndex* $100.00 $130.94 $163.06 $199.92 $184.04 $232.79$118.55 $143.19 $126.64 $155.24 $135.01
- -----------------------------------------------------------------------------------------
Russell 2000 Index $100.00 $128.34 $149.52 $182.95 $178.28 $216.19$116.50 $142.55 $138.91 $168.45 $163.36
- --------
*Assumes* The Dow Jones Chemical Industry Index was reconstituted in 2000 in order to
include more companies and reflects restated data for 1995 through 1999.
** Assumes $100.00 invested on December 31, 19941995, in Stepan Company Common
Stock, Dow Jones Chemical Industry Index and Russell 2000 Index.
11
APPROVALREPORT OF STEPAN COMPANYTHE AUDIT COMMITTEE
The Company's Audit Committee is comprised of the following non-employee
Directors: Messrs. Cadieux, Grojean and Potter. Each of these Directors
satisfies the New York Stock Exchange's definitions for independence. During
2000, STOCK OPTION PLAN
BackgroundMr. Cadieux served as Chairman of the Committee.
The Audit Committee is governed by a formal, written charter that has been
approved by the full Board of Directors recommends thatof the stockholders approveCompany. A copy of this charter
is included as Appendix A.
The Audit Committee has:
(a) reviewed and discussed with management the Stepan
Company 2000 Stock Option Plan (the "2000 Plan") which was adoptedCompany's audited financial
statements as of and for the year ended December 31, 2000;
(b) discussed with the independent auditors the matters required to be
discussed by Statement on Auditing Standards No. 61, Communication
with Audit Committees, as amended, by the Auditing Standards Board of
the American Institute of Certified Public Accountants;
(c) received and reviewed the written disclosures and the letter from the
independent auditors required by Independence Standard No. 1,
Independence Discussions with Audit Committees, as amended, by the
Independence Standards Board, and has discussed with the auditors the
auditor's independence; and
(d) considered whether the provision of non-audit services by the Company's
principal auditor is compatible with maintaining auditor independence.
Based on the reviews and discussions referred to above, we recommended to
the Board of Directors on March 3, 2000, subject to stockholder approval. A copy
of the 2000 Plan is included as Exhibit A and the following description is
qualified in its entirety by reference to such Exhibit.
The Board believes that the 2000 Plan will promote the long term financial interests of the Company by attracting and retaining executive, managerial and
key employees and Non-Employee Directors of outstanding ability, by providing
a competitive compensation program, and by further aligning the interests of
participants with those ofstatements referred to above be
included in the Company's stockholders.
The Plan
Subject to adjustments described below,Annual Report on Form 10-K for the 2000 Plan authorizes the award
of 1,000,000 shares of the Company's common stock (the "Stock") for stock
options, stock appreciation rights and stock awards (collectively referred to
as "awards"). Shares issuable under the 2000 Plan may be either authorized and
unissued shares or treasury shares. If an award made under the 2000 Plan
expires, terminates, or is canceled or settled in cash without the issuance of
shares of Stock covered by the award, those shares will be available for
future awards under the 2000 Plan. Awards are not transferable except by will
or the laws of descent and distribution or as provided for by the Compensation
and Development Committee of the Board of Directors (the "Committee"). No
awards may be granted under the 2000 Plan afteryear ended
December 31, 2009.
Administration
The authority to administer the 2000 Plan is vested in the Committee. None
of the members of the Committee is eligible to receive awards under the 2000
Plan except for Non-discretionary Awards (described below). Subject to the
terms of the 2000 Plan and except with respect to Non-discretionary Awards,
the Committee has the authority to select employees to receive awards, to
determine the time and type of awards, the number of shares covered by the
awards, and the terms and conditions of such awards. In making such
determinations, the Committee may take into account the employee's
contribution and potential contribution to the Company and any other factors
the Committee considers relevant. The recipient of an award has no choice
whether the award will be in the form of a stock option, a stock appreciation
right or a stock award. Based on the Company's experience under the 1982 and
1992 Stock Option Plans, it is not contemplated that stock appreciation rights
will be granted under the 2000 Plan, but provision for such grants is being
made under the 2000 Plan to provide flexibility in the event that, at some
future date, the Committee determines such grants to be in the best interest
of the Company or participants. In addition, the Committee has authorized, in
its sole discretion, the award of stock awards as described more fully below.
The Committee is authorized to establish rules and regulations and make all
other determinations that may be necessary or advisable for the administration
of the 2000 Plan.
Participation
Participants in the Plan will consist of Non-Employee Directors and such
executive, managerial and key employees of the Company as the Committee may
select from time to time. In view of the discretionary authority vested in the
Committee and the variable elements in the calculation of Non-discretionary
Awards, it is not possible to estimate the number of shares that may be
subject to awards with respect to any individual or group of individuals.
Although no determination has been made as to the number of employees,
including officers, who will be eligible for awards under the 2000 Plan, based
on the Company's experience under the 1982 and 1992 Plans, it is estimated
that at least 35 officers and employees of the Company will be eligible to be
considered for2000.
Robert D. Cadieux
Thomas F. Grojean
Robert G. Potter
AUDIT COMMITTEE
12
awards under the 2000 Plan. Four non-employee Directors will be eligible for
awards under the 2000 Plan. As of March 30, 2000, no awards have been made
under the 2000 Plan.
Awards to Employees
Stock Options. A stock option entitles the employee to purchase shares of
Stock at a price and upon the terms established by the Committee at the time
of the grant. Stock options may be granted to employees for a term of up to 10
years with an exercise price to be established by the Committee at not less
than the fair market value of the Stock on the date of the grant or, if
greater, par value. Subject to an individual limit for each employee, the 2000
Plan authorizes the grant of both non-qualified stock options ("NQOs") and
incentive stock options ("ISOs") to employees, in the discretion of the
Committee, provided that the aggregate value (determined at the time of the
grant) of the Stock with respect to which ISOs are exercisable for the first
time by any employee during any calendar year may not exceed $100,000.
However, in no event shall more than 350,000 ISOs be issued under the 2000
Plan. Stock options granted to employees under the 2000 Plan may be exercised
at any time during the exercise period established by the Committee, except
that no option may be exercised before the employee completes two continuous
years of employment following the date of grant. The 2000 Plan sets forth
restrictions upon the exercise of stock options upon termination of employment
by reason of death, disability, retirement or otherwise. The Committee may
permit the exercise price of options to be paid in cash, in shares of Stock,
or in any combination of cash and Stock.
Stock Appreciation Rights. Stock appreciation rights ("SARs") entitle the
employee to receive an amount equal to the difference between the fair market
value of a share of Stock at the time the SAR is exercised and the exercise
price specified by the Committee at the time the SAR is granted, which
exercise price cannot be less than the fair market value on the date the SAR
is granted. SARs may be granted in tandem with or independently of a stock
option. SARs granted in tandem with a stock option are exercisable at the time
and at the exercise price at which the related stock option is exercisable.
SARs granted independently of a stock option are exercisable at the time and
at the price established by the Committee. However, no SAR may be exercisable
before the employee completes two continuous years of employment with the
Company following the date of grant, or more than 10 years after the date of
grant. Exercise of an SAR granted in tandem with a stock option requires the
surrender of the tandem option, and the exercise of a stock option requires
the surrender of any tandem SAR. The Committee has discretion to determine
whether the exercise of an SAR will be settled in cash, in Stock, or in a
combination of cash and Stock. The 2000 Plan sets forth restrictions upon the
exercise of SARs upon termination of employment by reason of death,
disability, retirement or otherwise.
Stock Awards. A stock award is a grant of shares of Stock to an employee,
the earning, vesting or distribution of which is subject to certain conditions
established by the Committee. Stock awards may provide for delivery of the
shares of Stock at the time of grant or may provide for a deferred delivery
date. A stock award may be made in conjunction with a cash-based incentive
compensation program maintained by the Company and may be in lieu of cash
otherwise awardable under such program. The maximum number of shares of stock
awards that may be issued under the 2000 Plan is 350,000. In addition, for
those stock awards that are intended to be "Performance-Based Compensation"
(as defined under the Internal Revenue Code Section 162(m)), no more than
250,000 shares of Stock may be granted to any one employee during any one
calendar year period. The 2000 Plan sets forth restrictions upon the award of
stock awards upon termination of employment by reason of death, disability,
retirement or otherwise.
Non-discretionary Awards
Non-Employee Directors. Subject to approval by the Company's stockholders,
the 2000 Plan provides that, as of the date of the annual meeting of the
Company's stockholders in each of calendar years 2002, 2004, 2006 and 2008,
each Non-Employee Director serving as a Director of the Company on such date
will be granted a stock option to purchase the number of shares of Stock
determined by dividing the Non-Employee Director's annual retainer fee for the
applicable year by the fair market value of a share of Stock on the date of
the grant.
13
The option price of each share of Stock under a stock option granted to a Non-
Employee Director will be equal to the fair market value of a share of Stock
on the date of the grant or, if greater, par value. The option price may be
paid, upon exercise, in cash, in shares of Stock or in any combination of cash
or Stock as the Non-Employee Director elects. No stock option granted to a
Non-Employee Director may be exercised before the Non-Employee Director
completes two continuous years of service as a Non-Employee Director following
the date of the grant, or more than 10 years after the date of the grant. The
2000 Plan sets forth restrictions upon the exercise of stock options by Non-
Employee Directors upon termination of their service by reason of death,
disability, retirement or otherwise.
The stock options awarded to a Non-Employee Director under the 2000 Plan
are in addition to the retainer fee that is payable to the Non-Employee
Director by the Company in cash. The Company from time to time reviews the
adequacy and competitiveness of the amount of the annual retainer fee and
makes adjustments as it deems appropriate.
Adjustments
In the event of a corporate transaction involving the Company (including,
without limitation, any stock dividend, stock split, extraordinary cash
dividend, recapitalization, reorganization, merger, consolidation, split-up,
spin-off, combination or exchange of shares), the aggregate number of shares
with respect to which awards may be made under the 2000 Plan and the terms and
the number of shares of any outstanding award may be equitably adjusted by the
Committee in its discretion.
Amendment and Termination
The Board of Directors may amend or terminate the 2000 Plan at any time,
provided that no amendment of the 2000 Plan may (i) increase the number of
shares of Stock with respect to which awards may be made (except as described
above in "Adjustments"), (ii) be made without stockholder approval to the
extent such approval is required by law, agreement or the rules of any
exchange upon which the Stock is listed, or (iii) alter or impair any award
previously granted under the 2000 Plan without the consent of the holder
thereof.
Federal Income Tax Consequences
Under present federal income tax laws, awards granted under the Plan will
have the following tax consequences:
The grant of an NQO, ISO or SAR will not result in taxable income to the
employee at the time of the grant, and the Company will not be entitled to a
deduction at that time.
An employee generally will realize taxable ordinary income, at the time of
exercise of an NQO, in an amount equal to the excess of the fair market value
of the shares acquired over the exercise price for those shares, and the
Company will be entitled to a corresponding deduction.
The exercise of an ISO generally will not result in taxable income to the
employee, nor will the Company be entitled to a deduction at that time.
Generally, if the employee does not dispose of the Stock during the applicable
holding period, then, upon disposition, any amount realized in excess of the
exercise price will be taxed to the employee as capital gain, and the Company
will not be entitled to any deduction for federal income tax purposes. If the
holding period requirements are not met, the employee will generally realize
taxable ordinary income, and a corresponding deduction will be allowed to the
Company, at the time of disposition, in an amount equal to the lesser of (i)
the excess of the fair market value of the shares on the date of exercise over
the exercise price, or (ii) the excess, if any, of the amount realized upon
disposition of the shares over the exercise price. The exercise of an ISO and
the disposition of Stock acquired pursuant thereto must be taken into account
in computing the employee's alternative minimum taxable income.
14
Upon exercise of an SAR, the amount of cash or the fair market value of
Stock received will be taxable to the employee as ordinary income, and the
Company will be entitled to a corresponding deduction.
Upon grant of a stock award, the fair market value of the Stock received
will be taxable to the employee as ordinary income when the award vests, and
the Company will be entitled to a corresponding deduction.
All taxable income recognized by an employee under the 2000 Plan is subject
to applicable tax withholding which may be satisfied, under circumstances set
forth in the 2000 Plan, through the surrender of shares of Stock that the
employee already owns, or to which the employee is otherwise entitled under
the 2000 Plan.
The reported closing price of the Company's common stock on the New York
Stock Exchange--Composite Transactions for March 15, 2000, was $21.6875 per
share.
Required Vote for Approval
The approval by the affirmative votes of the holders of a majority of the
outstanding shares of Common Stock present, or represented by proxy, and
entitled to vote at the meeting is necessary for the approval of the 2000
Plan.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR THE APPROVAL OF
THE COMPANY'S 2000 STOCK OPTION PLAN.
----------------
REPORT OF THE COMPENSATION AND DEVELOPMENT COMMITTEE
The Company's executive compensation program is administered by the
Compensation and Development Committee of the Board of Directors, which is
composed of the following non-employee Directors: Messrs. Cadieux, Grojean,
Potter and P. Stepan. During 1999,2000, Mr. Grojean served as Chairman for the
Committee. All issues pertaining to corporate officer compensation are
submitted to the Committee for approval prior to implementation. Non-officerThe
Committee, as requested, reviews non-officer compensation for those reporting
to the Chief Executive Officer or the President is reviewed by the Committee as requested.President.
The Company's guiding philosophy in executive compensation is that:
(a) The base pay of executive officers should reflect job responsibilities
and performance, and should be competitive internally, to the like or
comparable positions, as well as being competitive externally, to the like or comparable
positions within the chemical industry. To this end,
theThe Company uses job
evaluation and measurement techniques consistent with moderncontemporary
industrial practice and sets paypractice. Compensation policy is established in accordance
with data supplied by Hay Associates, an independent compensation
consulting firm, for base pay trends and data in the chemical
industry.
Within individualspecific position salary ranges, the base salary levelslevel for each
executive officer areis determined in accordance with performance
standards set by Company policy and in compliance with position in the
salary range and the merit increase guidelines published annually for
all salaried employees. A separate determination is made wherewhen an
executive officer is promoted or assumes additional responsibilities,
which may result in an increase in excess of the merit increase
guideline.
During 1999,2000, merit increases for executive officers were slightly exceededbelow
the Company's merit guidelineguideline. Merit increases averaged 3.95%, while
two officers' increases averaged 11% to accommodate promotions and
averaged 5.2%. In addition, two
executive officers received a promotional increase averaging 40.6%.progress into their salary ranges.
The Chairman and Chief Executive Officer's (CEO) salary range is
determined by the same process and procedures as those of other
executive officers. The CEO's salary is adjusted by the Committee, in accordance with the salary merit
increase guideline.guidelines, adjusts the CEO's salary. During 1999,2000, the CEO's
base earnings increased by 4.2%3.3% over the prior year.
15
(b) The incentive pay of executive officers should be tiedis directly related to Company
performance and, in the case of all positions reporting to the performance ofCEO or
the Company and to the performance of the individual
executivePresident, against a set of annual, individual performance targets.
The Committee establishes Company incentive targets at the beginning of
each calendar year. As applicable, individual performance targets in a givenare
also established at the beginning of each calendar year. In years where
the Company performs well against its economic targets, significant
performance bonuses may be earned; if targets are not achieved, or exceeded,
incentive bonuses are proportionately lower or may not be paid at all.
All executive officers have a minimum of 25% of their incentive bonus
based on the overall performance of the Company, overall measured against
targets for (a) Net Income and (b) Return on Invested Capital approved
by theCapital. The
Committee approves these targets and percents for each calendar year period.year.
The typical arrangement is that half of the total is measured against
Net Income targets and half against targets for overall Corporate Return on
Invested Capital.
In 1999,2000, the Net Income results ofresult for the Company adjusted forwas below the $6.25
million after-tax legal settlement and the $476,000 after-tax early
retirement charge, were $28.8 million, which was at the DistinguishedMarginal
level of the incentive target as set by the Committee. As a result, no
incentive awards were made to executives for this factor for 1999. The average
award for executive officers under this factor was 17.8%.
During 1999,2000.
In 2000, the Company's result measured by Return on Invested Capital result for the Company was
9.06%, and againstbelow the targets was 70% aboveMarginal level of the Competent
level. The average incentive awardtarget as set by the
Committee. As a result, no incentive awards were made to executives for
this factor was 10.1%.for 2000.
The remainder of each individual executive officer's incentive bonus is
based on performance measures set by mutual agreement between the
executive and the CEO or the President. During 1999,2000, the average
incentive bonusaward for executive officers under this part of the plan was
18.9%9.95%.
13
The CEO's and the President's incentive compensation are determined
solely by the annual financial results of the Company for the year.Company. For 1999,
an2000, no
incentive bonus of $284,200 was paid to the CEO and an incentive
bonus of $180,810 was paid toor the President.
(c) Executive officers receive stock option grants on a regular schedule in
order to promote retention of proven executives, in recognition ofto recognize
outstanding job performance as an encouragementand to advanceencourage a focus on corporate
performance results, which in turn enhance the likelihood of increases
in the value of Common Stock.
In even-numbered years, stockStock options are granted in even-numbered years to those executives
and executive officers approved by the Committee and identified as
having significant impact on the financial results and economic success
and well-being of the Company. The Committee approves all stock option
awards. The size of stock option grantsawards is determined based on two factors: job
performance and the potential of each executive or executive officer to
impact the costs, sales and/or profitability of the Company andthat may
thus contribute to the value of the Common Stock held by stockholders.
During 2000, stock options were approved and granted to some eligible
executives and executive officers.
In addition, stock options are granted to executive officers at other
times based on other factors that the Committee determines to be
relevant. Such actions are occasioned by election, promotion or
extraordinary job performance results. During 1999,2000, no such stock
options were granted to two executive officers.granted.
(d) The Board of Directors believes that ownership of Company stock by
executives and executive officers is desirable in order to focus both
short and long-term decision making on the best interests of the
Company. To this end, during 1999,In 2000, the Committee maintained the following policy
guidelines:
1. Executive officers of the Company should own a minimum of Company
stock approximating two times their annual base salary paid by the
Company; and
2. Other executives (defined as those who are Level Four participants
in the Company Management Incentive Plan) should own a minimum of
Company stock approximating one times their annual base salary paid
by the Company.
16
Stock shares may be owned either directly, through the Company Stock Purchase
Plan or the Company Employee Stock Ownership Plan, or in shares held in
a deferred Management Incentive Plan account. Stock options not
exercised are not considered "owned stock" for the purpose of this
policy.
The CommitteeCompany realizes that time must be allowed to realize this targeted
goal, but expectsgoal. In 2000, the Committee approved a five-year time frame for
executives and executive officers to achieve such ownership within a three year time frame.ownership.
(e) Under current levels of compensation and because certain plans,
including grants under stock option plans prior to May 6, 1997, are
"grandfathered" under current IRS regulations, the Company is unlikely
to be affected by the one million dollar limit set forth in Section
162(m) of the Internal Revenue Code ("the Code") on the deductibility
of compensation for purposes of calculating federal income tax.
However, with respect to future years, the Committee intends to
consider the application of Section 162(m) of the Code to the Company's
compensation plans and practices, and will consider possible changes
thereto that may be necessary to qualify future compensation paid to
executive officers for deductibility under Section 162(m) of the Code
to the extent that such changes would be consistent with the Company's
compensation philosophy and in the best interests of the Company.
Robert D. Cadieux
Thomas F. Grojean
Robert G. Potter
Paul H. Stepan
THE COMPENSATION AND DEVELOPMENT COMMITTEE
1714
APPOINTMENT OF INDEPENDENT PUBLIC ACCOUNTANTS
AND AUDIT FEE SUMMARY
Upon the recommendation of its Audit Committee, the Board of Directors has
appointed Arthur Andersen LLP ("Andersen"), independent public accountants,
auditors for the Company and its subsidiaries for the year 2000.2001. The Board of
Directors recommends to the stockholders that the appointment of Andersen as
auditors for the Company and its subsidiaries be ratified. If the stockholders
do not ratify the appointment of Andersen, the selection of auditors will be
reconsidered by the Audit Committee and the Board of Directors.
Representatives of Andersen are expected to be present at the Annual Meeting
of Stockholders with the opportunity to make a statement, if they desire to do
so, and to be available to respond to appropriate questions from the
stockholders.
During fiscal year 2000, the Company retained Andersen as its principal
auditor to provide services in the following categories and amounts:
Audit Fees...................................................... $313,125
Financial Information Systems Design And Implementation Fees.... $ 0
All Other Fees.................................................. $363,198
STOCKHOLDER PROPOSALS--2001PROPOSALS--2002 ANNUAL MEETING
In order for proposals from Company stockholders to be included in the
Proxy Statement and Form of Proxy for the 20012002 Annual Meeting in accordance
with Securities and Exchange Commission Rule 14a-8, the Company must receive
the proposals at its administrative offices at Edens Expressway and Winnetka
Road, Northfield, Illinois 60093, no later than November 30, 2000.28, 2001.
A stockholder that intends to present business at the 20012002 Annual Meeting
other than pursuant to Rule 14a-8 must comply with the requirements set forth
in the Company's By-laws. Among other things, to bring business before an
annual meeting, a stockholder must give written notice thereof, complying with
the By-laws, to the Secretary of the Company not later than 90 days prior to
the anniversary date of the immediately preceding annual meeting of
stockholders. Therefore, because the 20002001 Annual Meeting is scheduled for May
9, 2000,1, 2001, the Company must receive notice of a stockholder proposal submitted
other than pursuant to Rule 14a-8 no later than February 8, 2001.January 31, 2002.
OTHER MATTERS
In connection with any other business that may properly come before the
meeting and of which the Board of Directors is not now aware, votes will be
cast pursuant to the authority granted by the enclosed Proxy in accordance
with the best judgment of a majority of the persons present and acting under
the Proxy.
In order to ensure the presence of the necessary quorum at the Annual
Meeting, please mark, sign and return the enclosed Proxy card promptly in the
envelope provided. No postage is required if mailed in the United States. Even
though you sign and return your Proxy card, you are invited to attend the
meeting.
As noted on the cover, a ticket will be required for admission and a
request form is enclosed.
By order of the Board of Directors
JEFFREY W. BARTLETTKATHLEEN M. OWENS
Assistant Secretary
Northfield, Illinois
March 30, 2000
1828, 2001
15
ExhibitAppendix A
STEPAN COMPANY
2000 STOCK OPTION PLAN
SECTION 1
General
1.1 Purpose.
Stepan Company (the "Company") has established the Stepan
Company 2000 Stock Option Plan (the "Plan") as set forth herein to promote the
long term financial interestsBoard of Directors
Audit Committee Charter
I. PURPOSE
The primary function of the Company by (i) attracting and retaining
executive, managerial and key employees and directors of outstanding ability;
(ii) providing incentive compensation opportunities in the form of Stock
Options, Stock Appreciation Rights and Stock Awards (each as described in
Section 3 and sometimes referredAudit Committee (Committee) is to herein, collectively, as "Awards") that
are competitive with those of other major corporations; and (iii) furthering
the identity of interests of Participants (as described in Section 2) with
those of the Company's stockholders.
1.2 Effective Date. The Plan shall be effective as of May 9, 2000, upon
approval of the holders of a majority of the outstanding shares of stock of
the Company present or represented and entitled to vote at the 2000 annual
meeting of its stockholders.
1.3 Administration. The authority to manage and control the operation and
administration of the Plan shall be vested in the Compensation and Development
Committee ofassist the
Board of Directors (Board) in fulfilling its oversight responsibilities to
shareholders, the investment community, and creditors in relation to the
quality and integrity of the Company (the "Committee"). Subjectcorporation's financial reporting, disclosures,
regulatory compliance, and internal control environment. In performing its
duties, the Committee will provide an open avenue of communication between the
Board, independent auditors, internal auditors, and financial management.
II. COMPOSITION
The Committee shall be comprised of three or more directors as determined
by the Board, each of whom shall be independent as defined by the NYSE. A
director who does not meet the independence requirements may be appointed to
the express provisionsCommittee if the Board determines that the individual's inclusion is in
the best interest of the Plan,corporation and its shareholders--this "override" is
available only to former officers and their immediate family members and is
limited to one member of the Committee.
All members of the Committee shall be financially literate or become
financially literate within a reasonable period of time after appointment to
the Committee. "Financial literacy" is defined as the ability to read and
understand fundamental financial statements, including a company's balance
sheet, income statement, and cash flow statement. Additionally, at least one
member of the Committee shall have accounting or related financial management
expertise--where "expertise" is meant to include being or having been a CEO or
other senior officer with financial oversight responsibilities.
The Board shall elect the members of the Committee and, unless a Chair is
elected by the full and
complete authority: (i) to interpret and construeBoard, the provisionsmembers of the Plan;
(ii) to prescribe, amend and rescind rules and regulations relating toCommittee may designate a Chair
by majority vote of the Plan; (iii) to select Participants in the Plan for purposes of Awards under
Section 3; (iv) to grant Awards under the Plan in such forms and amounts and
subject to such restrictions, limitations and conditionsfull Committee membership.
III. MEETINGS
The Committee shall meet regularly, with special meetings called as
it deems
appropriate, provided thatcircumstances warrant--at a minimum, the Committee shall have no authority, power, or
discretion to determine the number or timing of Awards granted pursuant to
Section 4 or to alter the terms and conditions of Awards as set forth therein;
(v) to correct any defect or omission and to reconcile any inconsistency in
the Plan or in any Award granted hereunder; and (vi) to make all other
determinations and to take all other actions as it deems necessary or
desirable for the implementation and administration of the Plan. The
determination of the Committee on matters within its authority shall be
conclusive and binding upon the Company and all other persons.
1.4 Shares Subject to the Plan. Subject to subsection 1.5,meet twice per year.
On an aggregate of
1,000,000 shares of common stock of the Company ("Stock") shall be available
for issuance under the Plan. Such shares shall be either authorized and
unissued shares or treasury shares (including, in the discretion of the Board
of Directors of the Company, shares purchased in the market) of Stock. If any
Awards under the Plan or portion thereof shall expire unexercised, terminate,
be surrendered, canceled, settled in cash in lieu of Stock or in such manner
that all or some of the shares subject to the Award are not issued to the
Participant, such shares shall (unless the Plan shall have terminated) become
available for additional Awards under the Plan, except shares withheld
pursuant to subsection 5.1.
1.5 Adjustments to Number of Shares Subject to the Plan. In the event of a
corporate transaction involving the Company (including, without limitation,
any stock dividend, stock split, extraordinary cash dividend,
recapitalization, reorganization, merger, consolidation, split-up, spin-off,
combination or exchange of shares), the Committee may adjust Awards to
preserve the benefits or potential benefits of the Awards. Action by the
Committee may include: (i) adjustment of the number and kind of shares which
may be delivered under the Plan; (ii) adjustment of the number and kind of
shares subject to outstanding Awards; (iii) adjustment of the Option Price of
outstanding Stock Options and SARs; and (iv) any other adjustments that the
Committee determines to be equitable.
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SECTION 2
Participation
2.1 Participation. Subject to the terms and conditions of the Plan,annual basis, at minimum, the Committee shall determinemeet independently with
senior financial management, the director of internal audit, and designate from timethe
independent auditors to timediscuss any matters the executive,
managerialCommittee or one of these
parties believes should be discussed privately.
IV. REPORTING RESPONSIBILITIES
The independent auditor is ultimately accountable to the Committee in their
fiduciary role as representatives of shareholders and key employeesthe full Board. As such,
the Committee has the ultimate authority and responsibility to select,
evaluate, and where appropriate, replace the independent auditor. In addition,
the director of internal audit has direct reporting responsibility to the
Company who shall be Participants in the
Plan. In making this determination,Committee and the Committee shall take into accountreview and approve any personnel change in
this position.
V. RESPONSIBILITIES AND DUTIES
To fulfill its responsibilities and duties the employee's contributionAudit Committee shall:
Documents and potential contribution toReports
1. Maintain a formal written charter that is approved by the Companyfull Board and
any
other factors thatreview and reassess the Committee determines to be relevant. Each memberadequacy of this charter on an annual basis.
This charter shall specify the scope of the Company's Board of Directors who is not otherwise an employee of the Company
(a "Non-Employee Director") shall become a Participant in the Plan upon
receipt of an Award in accordanceCommittee's responsibilities
and define how it carries out those responsibilities.
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2. Review with the provisions of Section 4.
SECTION 3
Awards to Employees
3.1 Stock Options. Subject to the terms and conditions of the Plan
including the limitations of subsection 3.4, the Committee shall designate the
employees to whom options to purchase shares of Stock ("Stock Options") are to
be granted under the Plan, and shall determine the number, type and terms of
the Stock Options to be granted to each of them. Each Stock Option shall
entitle the Participant to purchase shares of Stock upon the terms and
conditions and at the price determined by the Committee at the time the Stock
Option is granted, subject to the following provisions of this Section 3. Any
Stock Option granted under this Section 3 that satisfies all of the
requirements of section 422 of the Internal Revenue Code of 1986, as amended
(the "Code"), may be designated by the Committee as an "Incentive Stock
Option". However, in no event shall more than 350,000 Incentive Stock Options
be issued under the Plan. Stock Options that are not so designated or that do
not satisfy the requirements of section 422 of the Code shall not constitute
Incentive Stock Options and shall be referred to below as "Non-Qualified Stock
Options". Shares of Stock purchased pursuant to the exercise of a Non-
Qualified Stock Option shall be transferred to the person entitled thereto (i)
as soon as practicable after the exercise; or (ii) at the end of such period
of deferral as may be specified or permitted by the Committee; provided that,
if transfer of shares is made pursuant to this clause (ii), the Committee
shall provide that the person entitled to such deferred delivery will earn the
right to deferred delivery of additional shares of Stock reflecting the value
of dividends on the shares during the deferral period.
3.2 Option Price. The purchase price of each share of Stock under a Stock
Option granted under this Section 3 shall be determined by the Committee at
the time of the Award; provided, however, that in no event shall such price be
less than the Fair Market Value (as defined in subsection 5.2) of a share of
Stock on the date the Stock Option is granted or, if greater, par value. To
the extent provided by the Committee, the purchase price of each share of
Stock purchased upon the exercise of any Stock Option granted under this
Section 3 shall be paid, at the time of exercise, in cash (including check,
bank draft or money order), in shares of Stock (valued at Fair Market Value as
of the date of exercise) or in any combination of cash and Stock. In addition,
to the extent permitted by the Committee, the Participant may pay the Option
Price by authorizing a third party to sell shares of Stock (or a sufficient
portion of the shares) acquired upon exercise of the Stock Option and remit to
the Company a sufficient portion of the sale proceeds to pay the entire Option
Price and any tax withholding resulting from such exercise. If applicable,
separate certificates representing the shares purchased by exercise of
Incentive Stock Options and by exercise of Non-Qualified Stock Options shall
be delivered to the person entitled thereto as soon as practicable after such
exercise.
3.3 Stock Appreciation Rights. Subject to the limitations of subsection
3.4, the Committee may, in its sole discretion, award "Stock Appreciation
Rights" to Participants together with or independently of any Stock Option
previously or contemporaneously granted under this Section 3. A Participant
who is awarded a Stock Appreciation Right shall be entitled to receive from
the Company, at the time such right is exercised, that number of shares of
Stock having an aggregate Fair Market Value equal to the product of (i) the
number of shares of Stock as to which the Participant is exercising the Stock
Appreciation Right, and (ii) the excess of the Fair
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Market Value (at the date of exercise) of a share of Stock over the Option
Price specified by the Committee at the time of the Award which shall not be
less than the Fair Market Value of a share of Stock on the date of such Award.
Stock Appreciation Rights shall be exercisable at such times, on such terms,
and at such price as the Committee shall determine at the time the award is
granted; provided, however, that if a Stock Appreciation Right is granted
together with a Stock Option: (i) the Stock Appreciation Right shall be
exercisable only to the extent that the related Stock Option is exercisable
and at the Option Price of the related Stock Option; (ii) the Stock
Appreciation Right shall be canceled to the extent that the related Stock
Option is exercised; and (iii) the Stock Option shall be canceled to the
extent that the related Stock Appreciation Right is exercised. The Committee,
in its sole discretion, may elect to settle all or a portion of the Company's
obligation arising out of the exercise of a Stock Appreciation Right by the
payment of cash in an amount equal to the Fair Market Value of the shares of
Stock it would otherwise be obligated to deliver. In exercising such
discretion, the Committee shall take into account the Participant's need to
pay taxes arising out of the exercise of the Stock Appreciation Rightsenior financial management and the Company's purpose in establishingindependent auditors the
Plan to encourage ownership of Stock by
Participants.
3.4 Limitations on Stock Options and Stock Appreciation
Rights. Notwithstanding any other provision of the Plan to the contrary, no
Participant shall receive any Award of a Stock Option or Stock Appreciation
Right under the Plan to the extent that the sum of:
(i) the number of shares of Stock subject to such Award; and
(ii) the number of shares of Stock subject to all other prior Awards of
Options and Stock Appreciation Rights under the Plan during the
one-year period ending on the date of the Award;
would exceed the Participant's Individual Limit under the Plan. The
determination made under the foregoing provisions of this subsection shall
be based on the shares subject to the Awards at the time of grant,
regardless of when the Awards become exercisable. Subject to the provisions
of subsection 1.5, a Participant's "Individual Limit" shall be 350,000
shares.
3.5 Stock Awards. The Committee may, in its sole discretion, award Stock
Awards under the Plan. A Stock Award under the Plan is a grant of shares of
Stock to a Participant, the earning, vesting or distribution of which is
subject to one or more conditions established by the Committee. Such
conditions may relate to events (such as performance or continued employment)
occurring before or after the date the Stock Award is granted, or the date the
Stock is earned by, vested in or delivered to the Participant. If the vesting
of Stock Awards is subject to conditions occurring after the date of grant,
the period beginning on the date of grant of a Stock Award and ending on the
vesting or forfeiture of such Stock (as applicable) is referred to as the
"Restricted Period". Stock Awards may provide for delivery of the shares of
Stock at the time of grant or may provide for a deferred delivery date. A
Stock Award may, but need not, be made in conjunction with a cash-based
incentive compensation program maintained by the Company and may, but need
not, be in lieu of cash otherwise awardable under such program.
3.6 Terms and Conditions of Stock Awards. Stock Awards granted to
Participants under the Plan shall be subject to the following terms and
conditions:
(a) Beginning on the date of grant (or, if later, the date of
distribution) of shares of Stock comprising a Stock Award, and
including any applicable Restricted Period, the Participant as
owner of such shares shall have the right to vote such shares.
(b) Payment of dividends with respect to Stock Awards shall be subject
to the following:
(i) On and after the date that a Participant has a fully earned and
vested right to the shares comprising a Stock Award,corporation's annual audited financial statements and the shares have been distributed to the Participant, the Participant
shall have all Dividend Rights (and other rights) of a
stockholderauditor's
opinion rendered with respect to such shares.
(ii) Priorfinancial statements. Recommend to
the date that a Participant has a fully earned and
vested right tofull Board the shares comprising a Stock Award, Dividend
Rights with respect toinclusion of such shares shall accrue.
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(iii) On and after the date that a Participant has a fully earned
and vested right to the shares comprising a Stock Award, but
before the shares have been distributed to the Participant,
the Participant shall be entitled to Dividend Rights with
respect to such shares, at the time andfinancial statements in the form determinedannual
report on Form 10-K.
3. Review material findings reported to management by the Committee.
(iv) A "Dividend Right" with respect to shares comprising a Stock
Award shall entitleinternal audit
department and management's subsequent responses.
4. Review the Participant,ongoing implementation status of all internal audit
recommendations.
5. Review the independent auditor's annual management recommendation
letter, including management responses.
Annual Audit Scope
1. Monitor the coordination of internal/external audit efforts and ensure
adequate audit coverage of key business and financial risk areas.
2. Review and assess the process for developing the annual internal audit
plan and modify the process or plan as necessary.
3. Review the overall scope and focus of the annual external audit plan and
request modifications as necessary.
4. Review progress towards completion of both the internal/external audit
plans at each dividend
payment date, to an amount equal to the dividends payable with
respect to a shareCommittee meeting.
Audit Committee Meetings
1. Review and agree upon meeting agendas in advance of Stock multiplied by the numberCommittee meetings.
The Chair of such
shares. Dividend Rights shall be settled in cash or in shares
of Stock, as determined by the Committee, shall be payable at
the time and in the form determined by the Committee and shall
be subject to such other terms and conditions as the Committee may determine.
(c) Torepresent the extententire Committee when
establishing agendas.
2. Ensure meeting agendas and related supporting documentation are
distributed sufficiently in advance of meetings.
3. Distribute Committee meeting minutes to the full Board for discussion
at such meetings.
Independent Accountants
1. Discuss with the independent auditor the auditor's business
relationships with the corporation and the nature of non-audit services
provided to the corporation that may impact the objectivity and
independence of the auditor. Recommend that the Committee determinesfull Board take
appropriate action when required.
2. Require a formal written statement from the independent auditor
delineating all relationships between the auditor and the corporation,
including those that it is necessary or
desirablemay impact objectivity and independence.
3. Recommend to conform any Awards under the Planfull Board the selection of the independent auditor,
considering independence and effectiveness, and approve the fees and
other compensation to be paid to the independent auditor.
4. Discuss with the requirements applicable to "Performance-Based Compensation", as
that term is usedindependent auditor the items required by the Statement
on Auditing Standards (SAS) #61, including (a) discussions about both
the acceptability and quality of the accounting principles applied in
Code section 162(m)(4)(C), it may, atthe corporation's financial reporting; (b) the clarity of the company's
financial disclosures; (c) degree of aggressiveness or conservatism of
the company's application of accounting principles and underlying
estimates; (d) all significant differences in opinion between management
and the external auditors; (e) unrecorded audit adjustments, and; (f)
other significant decisions made by management in preparing financial
disclosures.
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5. Periodically consult with the independent auditor outside the presence
of internal management about internal controls and the fullness and
accuracy of the organization's financial statements.
6. Ensure the independent auditors have conducted a SAS #71 interim
financial review prior to the timecompany's filing of its Form 10-Q. SAS #71
reviews consist principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial
and accounting matters. These procedures are substantially less in scope
than an Award is granted, take such steps and impose such
restrictions with respect to such Award as it determines to be
necessary to satisfy such requirements including, without
limitation:
(i) The establishment of performance goals that must be satisfied
prior to the payment or distribution of benefits under such
Stock Awards. Such performance goals shall include any or all of
the following: share price, market share, revenue, earnings per
share, return on equity, return on assets, cash flow, return on
investment, return on invested capital, net income, net income
per share, operating earnings, and operating earnings per share.
Each objective performance goal must be based upon or measured
by criteria which would permit a third party having knowledge of
the relevant facts to determine whether the objective
performance goal was satisfied and to calculate the amount of
the Stock Awards to be granted. The Committee shall have no
discretion to adjust the goals for a Stock Award once they have
been set. The Committee must certify in writing, that the goals
have been met before any grants of Stock Awards may vest.
(ii) Providing that no payment or distribution beaudit made under such
Awards unless the Committee certifies that the goals and the
applicable terms of the Plan and agreement reflecting the
Awards have been satisfied.
(d) Subject to subsection 1.5, the maximum number of shares of Stock
Awards that may be issued shall be 350,000.
(e) Subject to subsection 1.5 for Stock Awards that are intended to be
"Performance-Based Compensation" (as that term is used for purposes
of Code section 162(m)), no more than 250,000 shares of Stock may
be granted as Stock Awards to any one individual during any one
calendar year period. If, after amounts have been earned with
respect to Stock Awards, and the delivery of such amounts is
deferred, any additional amounts attributable to earnings during
the deferral period shall be disregarded.
3.7 Limitations on Exercise. No Award under this Section 3 may be exercised
by any person prior to the date, if any, on which the Participant to whom the
Award was granted completes two continuous years of employment with the
Company after the grant thereof.
3.8 Expiration of Awards to Employee. All rights with respect to an Award
made under this Section 3 shall automatically terminate as of the Award's
"Expiration Date". The "Expiration Date" with respect to an Award or any
portion thereof, granted to a Participant under this Section 3 shall be the
earliest of:
(a) the date which is 10 years after the date on which the Award is
granted;
(b) the date established by the Committee at the time of the Award;
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(c) in the case of an Incentive Stock Option, the date which is three
months after the date the Participant's employment is terminated by
reason of his normal retirement (or early retirement with the
Company's approval) under the provisions of any qualified
retirement plan maintained by the Company or by reason of death, or
the date which is twelve months after the date the Participant's
employment is terminated by reason of his becoming Disabled (within
the meaning of section 22(e)(3) of the Code), or the date on which
the Participant's employment with the Company is terminated for any
other reason; or
(d) in the case of a Non-Qualified Stock Option, a Stock Appreciation
Right or a Stock Award, the date on which the Participant's
employment with the Company is terminated for any reason other than
by reason of his becoming Disabled (within the meaning of section
22(e)(3) of the Code), his death or, his normal retirement (or
early retirement with the Company's approval) under the provisions
of any qualified retirement plan maintained by the Company.
SECTION 4
Awards to Non-Employee Directors
4.1 Non-Discretionary Awards. As of the date of the annual meeting of the
Company's stockholders in each of calendar years 2002, 2004, 2006 and 2008,
each Non-Employee Director serving as a Director of the Company on such date
shall be awarded a Stock Option to purchase the number of shares of Stock
determined by dividing the annual retainer fee payable to the Non-Employee
Director for such calendar year by the Fair Market Value of a share of Stock
as of such date. Stock Options granted under this Section 4 shall not
constitute Incentive Stock Options.
4.2 Option Price. The purchase price of each share of Stock under a Stock
Option granted under this Section 4 shall be equal to the Fair Market Value of
a share of Stock on the date on which the Stock Option is granted or, if
greater, par value. The purchase price shall be paid, upon exercise, in cash
(including check, bank draft or money order), in shares of Stock (valued at
Fair Market Value as of the date of exercise), or in any combination of cash
and Stock.
4.3 Service Required for Exercise. Each Stock Option granted to a
Participant under this Section 4 shall become exercisable upon the
Participant's completion of two continuous years of service as a Non-Employee
Director after the date of the grant thereof.
4.4 Expiration of Non-Discretionary Awards. All rights with respect to an
Award under this Section 4 shall automatically terminate on the earliest of:
(a) the date which is 10 years after the date of the grant;
(b) the date which is one year after the date on which the
Participant's service to the Company as a Non-Employee Director
terminates by reason of his Retirement (as defined below), death or
his becoming Disabled; or
(c) the date on which the Participant's service to the Company as a
Non-Employee Director terminates for any reason other than as
described in paragraph (b) next above.
For purposes of this subsection 4.4, the term "Retirement" means (i)
mandatory retirement pursuant to Board of Director policy; or (ii) termination
of service with the Company at a time when the Participant would have been
eligible for normal retirement or early retirement under the terms of the
Stepan Company Retirement Plan for Salaried Employees, as then in effect, as
if the Non-Employee Director were an employee of the Company.
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SECTION 5
Miscellaneous
5.1 Compliance With Applicable Laws and Withholding of
Taxes. Notwithstanding any other provision of the Plan, the Company shall have
no liability to issue any shares of Stock under the Plan unless such issuance
would comply with all applicable laws and the applicable requirements of any
securities exchange or similar entity. Prior to the issuance of any shares of
Stock under the Plan, the Company may require a written statement that the
recipient is acquiring the shares solely for investment and not for the
purpose or with the intention of distributing the shares. All Awards and
payments under the Plan are subject to withholding of all applicable taxes,
which withholding obligation shall be satisfied by the payment of cash or
check payable to the Company, or through the surrender of shares of Stock
which the Participant already owns or the withholding of shares of Stock to
which a Participant is otherwise entitled under the Plan; provided, however,
that, in the case of Awards under Section 3, satisfaction of withholding
obligations by the surrender or withholding of shares of Stock shall be
subject to the consent of the Committee. In the case of a Participant who is
subject to sections 16(a) and 16(b) of the Securities Exchange Act of 1934,
the Committee may, at any time, add such conditions and limitations to any
Stock Appreciation Right awarded such Participant, or to any election by the
Participant to satisfy tax withholding obligations with respect to Awards
under Section 3 through the withholding or surrender of shares of Stock as the
Committee, in its sole discretion, deems necessary or desirable to comply with
section 16(a) or 16(b) and the rules and regulations thereunder or to obtain
any exemption therefrom. To the extent not inconsistent with the foregoing
provisions of this subsection 5.1, the Plan and each agreement entered into
pursuant hereto shall be construed and administered in accordance with generally accepted auditing
standards.
SEC Reporting Requirements
1. Report annually in the lawsproxy that we have (a) reviewed and discussed the
company's audited financial statements with management; (b) discussed
SAS #61 items, including quality of accounting principles, with the
independent auditors; (c) reviewed independence disclosures from the
independent auditors and discussed with the independent auditors their
independence; and (d) based on the foregoing reviews and discussions,
recommended to the Board the inclusion of the State of Illinois.
5.2 Fair Market Value. Subject to the provisions of subsection 1.5, for all
purposes of the Plan, the term "Fair Market Value" as applied to a share of
Stock means, as of any date, the average of the opening price and the closing
price of a share of Stock on such day as reported on the New York Stock
Exchange-Composite Transactions, or if Stock is not traded on that day, on the
next preceding day on which Stock was traded.
5.3 Agreement With the Company. At the time any Award is made under the
Plan, the Participant shall be required to enter into an agreement with the
Company in a form specified by the Committee containing such terms and
conditions, consistent with the Plan, as the Committee may, in its sole
discretion, prescribe.
5.4 Procedure for Exercise. Stock Options and Stock Appreciation Rights
awarded under the Plan shall be exercised in whole or in part by filing a
written notice with the Secretary of the Company at its corporate
headquarters. In the case of the exercise of a Stock Option, such notice shall
specify the number of shares of Stock which the Participant elects to purchase
and shall be accompanied by payment of the purchase price for such shares. In
the case of the exercise of a Stock Appreciation Right, such notice shall
designate the number of shares with respect to which the Participant elects to
exercise such right.
5.5 Nontransferability. Except as otherwise provided by the Committee, no
Award under the Plan, and no interest therein, shall be transferable except by
the Participant by will or by the laws of descent and distribution, or, to the
extent not inconsistent with the applicable provisions of the Code, pursuant
to a qualified domestic relations order (as that term is definedfinancial statements in
the Code).
All Awards shall be exercisable during a Participant's lifetime only by the
Participant. After a Participant's death, Awards shall be exercisable, to the
extent exercisable by the Participantannual report on the date of his death, by the
executor or administrator of the Participant's estate or by the person or
persons who shall have acquired the Award from the Participant by bequest or
inheritance, subject to the terms of the Plan and the agreement between the
Company and the Participant evidencing such Award.
5.6 Employment and Stockholder Status. The Plan does not constitute a
contract of employment or continued service and participation in the Plan will
not give any employee or Participant the right to be retained in the employ of
the Company or the right to continue as a director of the Company, or any
right or claim to any benefit under the Plan unless such right or claim has
specifically accrued under the terms of the Company prior
A-6
to the issuance of Stock pursuant to the exercise thereof. If the
redistribution of shares of Stock is restricted pursuant to subsection 5.1,
certificates representing such shares may bear a legend referring to such
restrictions.
5.7 Term of the Plan. The Plan was adopted by the Board of Directors on
March 3, 2000, subject to the approval of the stockholders of the Company as
set forth in subsection 1.2. Any Awards granted under this Plan prior to
receipt of such approval shall be subject to such approval being obtained and
shall automatically terminate and be of no further force or effect if such
approval is not obtained. No Awards shall be granted under the Plan after
December 31, 2009 or, if earlier, the date on which the Plan is terminated
pursuant to subsection 5.8.
5.8 Amendment and Termination of the Plan. Subject to the following
provisions of this subsection 5.8, the Board of Directors of the Company may
at any time and in any manner amend, suspend or terminate the Plan; provided,
however, that no such amendment, suspension or termination shall:
(a) be made without stockholder approval to the extent such approval is
required by law, agreement or the rules of any exchange or
automated quotation system upon which the Stock is listed or
quoted; or
(b) alter or impair the rights of Participants with respect to Awards
previously granted under the Plan without the consent of the holder
thereof.
A-7Form 10-K.
A-3
PROXY PROXY
STEPAN COMPANY
Annual Meeting of Stockholders to be held May 9, 20001, 2001
This Proxy is solicited on behalf of the Company's Board of Directors
I, the undersigned hereby appoint Jeffrey W. BartlettKathleen M. Owens and Walter J. Klein, or
either of them (the "Proxies"), with full power of substitution, to represent
and vote all shares that the undersigned is entitled to vote at the annual
meeting of stockholders of STEPAN COMPANY on May 9, 2000,1, 2001, or at any adjournment
thereof.
This proxy when properly executed will be voted in the manner directed
herein. If no direction is made, this proxy will be voted FOR proposals 1 2 and 3,2,
set forth below.
1. Election of Directors, Nominees: Robert D. CadieuxG. Potter and Paul H.F. Quinn Stepan.
2. Approval of the adoption of the Stepan Company 2000 Stock Option Plan.
3. Ratification of the appointment of Arthur Andersen LLP as independent
auditors for the Company for 2000.2001.
In their discretion the Proxies are authorized to vote on such other business as
may properly come before the meeting.
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY,
USING THE ENCLOSED ENVELOPE.
(Continued and to be signed on reverse side.)
STEPAN COMPANY
[ PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY. [x][_]
[ ]
The Board of Directors recommends a vote "FOR" 1 2 and 3.2.
1. Election of Directors -
Nominees:
01 Robert D. Cadieux and 02 Paul H. Stepan.Directors- For Withhold For All
Nominees: 01-Robert G. Potter and All All (Except withhold for
02-F. Quinn Stepan. nominee written below.)below)
[_] [_] [_]
- ---------------------------------------
2. Approval of Stock Option Plan.--------------
For Against Abstain
[_] [_] [_]
3.2. Ratification of independent auditors.
For Against Abstain [_] [_] [_]
Dated: , 2000
------------------------------2001
------------------
Signature(s)
-------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
--------------------------------------
Please date and sign exactly as your
name appears hereon. Joint owners
should each sign. When signing as
attorney, executor, administrator,
trustee or guardian, please give full
title as such.
- --------------------------------------------------------------------------------
. FOLD AND DETACH HERE .
YOUR VOTE IS IMPORTANT!
PLEASE VOTE, SIGN, DATE AND RETURN THIS PROXY CARD
PROMPTLY USING THE ENCLOSED ENVELOPE.
ADMISSION CARD REQUEST
STEPAN COMPANY
ANNUAL STOCKHOLDERS' MEETING
22 West Frontage Road
Northfield, Illinois 60093
May 9, 2000 at 9:00 a.m.
Admission to Stepan Company's Stockholders' Meeting will be by Admission Card
only. Seating is limited and only one admission card will be issued for each
stockholder account. To obtain an Admission Card, please complete and return
this form in the enclosed envelope. A sequenced and numbered Admission Card
will be mailed to you. Please allow at least two weeks for receipt of the
Admission Card.
Please complete the information below:
Beneficial Owner: Record Owner
Shares held by
Name
- ------------------------------------ -----------------------------------------
Street
- ------------------------------------ -----------------------------------------
City/Town State Zip
- ------------------------------------ -----------------------------------------
Class of Stock: Common
Preferred